Brokers offering 'unaffordable' mortgages

Mortgage brokers have been accused of pushing through unaffordable homeloans and implausible earnings information, in a report by the financial watchdog.

Unaffordable dreams: Brokers have been accused of selling unaffordable mortgages to would-be buyers

The Financial Services Authority said that some brokers were failing to meet required standards and undermining the industry with negligence.

It said that brokers were offering applicants mortgages they could not afford and accepting dubious self-certified earnings information.

The FSA said an investigation revealed several brokers operating 'well below' the standard required, with senior management failing to adequately monitor and control their firms' performance to ensure they were treating customers fairly.

Seven firms have been referred to the FSA's enforcement division, while others have been considered for referral.

Meanwhile 65 firms have been told to undertake past business reviews, or employ specialists to resolve their problems.

The failings came to light following four reviews of 345 mortgage brokers operating in both the prime and sub-prime markets carried out between June and September.

Stephen Bland, FSA retail intermediary sector leader, said: 'During the reviews we saw a number of good brokers who are meeting the required standards and they are being undermined by the negligence or wilful non-compliance of others.

'We also saw some who despite having some way to go, were willing to engage with us and be helped to improve their performance, which is why we are providing so much guidance following these reviews.

'However there are still an unacceptable number of firms unwilling to change and they are damaging the rest of the industry.'

The review of brokers offering self-certification mortgages, which arrange loans for people such as the self-employed who cannot prove their income, targeted 48 firms, several of whom were suspected of breaching FSA rules.

A number of repossession cases linked to the sale of self-cert mortgages have emerged. One London couple were encouraged to inflate their joint income of around £24,000 to an imaginary £43,500 in order to qualify for a mortgage of £200,000. They found it impossible to meet the repayments.

The FSA is also investigating whether the big banks and building societies have failed to carry out full checks on customers' finances.

Some have been sold mortgages that will run far beyond their retirement age and others have been sold interest-only products, with no clear plan to repay the capital.

The Council of Mortgage Lenders said the problems found by the FSA should serve as a 'wake-up call'. But it argued the FSA was partly responsible because it had not made clear what brokers need to do.

CML director general Michael Coogan said: 'After three years of regulation, the FSA is right to expect its regulatory standards to be in place across the whole market. These findings are a wake-up call to those brokers who are behind the pace.

'But the FSA also needs to make sure that it sets out its expectations clearly and unambiguously, which does not always happen. This is particularly important for small broking firms.'